BILL ANALYSIS                                                                                                                                                                                                    

                                                                    SB 1216  

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          Date of Hearing:  August 3, 2016


                               Lorena Gonzalez, Chair

          SB 1216  
          (Hueso) - As Amended June 29, 2016

          |Policy       |Revenue and Taxation           |Vote:|9 - 0        |
          |Committee:   |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |

          Urgency:  No  State Mandated Local Program:  NoReimbursable:  No


          This bill establishes an income tax credit, under both the  
          Personal Income Tax (PIT) and the Corporation Tax (CT) laws, for  
          employers that hire certain young individuals who are  
          ex-offenders convicted of a felony, as defined.  Specifically,  
          this bill:  

          1)Allows an income tax credit no larger than $15,000 for taxable  
            years beginning on or after January 1, 2017, and before  
            January 1, 2022, to a "qualified taxpayer" equal to 23.5% of  
            the "qualified wages" paid to a "qualified full-time  


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          2)Defines a "qualified full-time employee" as an ex-offender  
            between 18 and 25 years of age who completes a work readiness  
            program, receives a starting wage of at least 150% of the  
            minimum wage, and meets other specified requirements. 

          3)Defines a "qualified taxpayer" as a person or entity engaged  
            in trade or business within California, except those employers  
            who provide temporary services, are in the retail trade  
            services, are primarily engaged in services in casinos, casino  
            hotels, or drinking places, or are a sexually oriented  

          4)Defines "qualified wages" as the portion of the wages paid  
            that exceed 150% of the minimum wage but does not exceed 350%  
            of the minimum wage. For employees working in a pilot area of  
            California's New Employment Credit Program, qualified wages  
            are the portion of wages that exceed $10 an hour but not more  
            than 350% the minimum wage. 

          5)Provides for the recapture of the credit if the employee is  
            terminated any time during the first 36 months after  
            commencing employment, except in certain circumstances, as  

          6)Requires the Franchise Tax Board (FTB) to provide a searchable  
            database of employer names, amounts of tax credit claimed, and  
            the number of jobs created for each taxable year. 

          FISCAL EFFECT:

          1)One-time administrative costs to FTB of approximately $750,000  


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            to implement the proposed tax credit and ongoing  
            administrative costs of approximately $150,000 to maintain the  
            program and searchable database. (General Fund)

          2)Annual revenue loss of $0.3 million, $1.0 million, and $1.7  
            million in 2016-17, 2017-18, and 2018-19, respectively.  
            (General Fund)  


          1)Purpose. According to the author, SB 1216 will help a fragile  
            and disadvantaged demographic group transition back into  
            society after incarceration by reducing barriers to  
            employment. The author's office notes that ex-offenders have a  
            difficult time reentering the labor market following their  
            incarceration because of social stigma and an erosion in  

          2)California's New Employment Credit Program. SB 1216 is  
            structured similarly to California's New Employment Tax  
            Credit. This hiring tax credit is available to employers for  
            additional hiring of employees in defined geographic areas  
            (DGAs) in California. This hiring credit is generally  
            available in the geographic areas covered by the former  
            enterprise zones. 

            The New Employment Credit is available for wages paid by  
            taxpayers to full-time employees, including ex-offenders  
            convicted of a felony, who perform at least 50% of their  
            activities in the designated areas.  The credit percentages  
            are 35% per year, for five years, for wages between 150% and  
            350% of the minimum wage.  For a qualified employee working in  


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            a pilot area, the applicable wages are those wages exceeding  
            $10 per hour, up to 350% of the minimum wage.  Pilot areas are  
            areas within the DGA that have been designated by GO-Biz.  Up  
            to five pilot areas may be designated for a period of four  
            calendar years.   

            Except for small businesses, certain employers otherwise  
            qualified for the New Employment Credit are prohibited from  
            receiving this credit. For example, excluded businesses  
            include those in temporary help services, food services,  
            drinking places (alcoholic beverges), casinos and casino  
            hotels, and sexually-oriented businesses. 

          3)What does SB 1216 do differently? Even though the New  
            Employment Tax Credit is available to employers who hire  
            ex-offenders and is potentially more generous to eligible  
            employers, SB 1216 is different in a number of important ways.  
            First, SB 1216 is not restricted to specific geographic  
            regions in California. Therefore, employers who are located in  
            areas that would make them ineligible to claim the existing  
            hiring credit would be able to receive his new hiring credit.  
            Moreover, unlike the existing program, employers do not have  
            to show a net increase in employment in order to receive the  
            credit. Therefore, otherwise eligible employers could receive  
            the credit if they simply hired a qualified ex-offender and  
            fired another employee. 

          4)Recent amendments. Recent policy committee amendments to SB  
            1216 addressed the issue of "double dipping." Prior to these  


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            amendments, an employer could deduct qualified wages as  
            business expenses as well as obtaining a tax credit for the  
            same wages.  Additionally, the value of the credit was  
            increased from 20% to 23.5% to make the aforementioned change  
            revenue-neutral. Moreover, recent author amendments clarified  
            that a job training provider includes continuing education  
            courses or services that connect individuals to high school or  
            continuing education services. 

           Analysis Prepared by:Luke Reidenbach / APPR. / (916)